Does Saba Capital Management have a blind spot? Boaz Weinstein’s activist hedge fund has disclosed $3.8bn or thereabouts of positions in UK closed-end trusts — which he says have failed their shareholders by letting discounts to net-asset value persist — but seems to be showing no interest in one of the biggest opportunities.
Pershing Square’s $17.4bn closed-ended trust fits the template for Saba activism. Since launch in 2012, the fund’s stock has persistently traded at a deep discount. And while performance has been more than respectable, all attempts to narrow the discount — such as buybacks for more than a quarter of its equity and an IPO offset agreement with its manager, Pershing Square Capital Management — have failed to do much:
High costs are to blame for Pershing’s persistent NAV discount: it charges 16 per cent over the high-water mark on top of a 1.5 per cent annual charge. Last year’s plan to reduce performance fees for UK investors by launching a US-listed twin fund was scrapped after colliding with reality.
In return for the high charges, Pershing investors get platform exposure to its CEO/portfolio manager’s keen sense of opportunism. The CEO/portfolio manager now seems perpetually distracted by woke, however, so the value of that platform is now open to question.
And who better than Institutional Investor’s Activist Hedge Fund Manager of the Year to ask that question?
Saba’s coups are zero for seven, with Edinburgh Worldwide having last week completed the rout (98.4 per cent of independents voted against the activist’s resolutions). Weinstein’s new front is to lobby for open-ending and a return of cash, but it can only work for some of his targets: open-ending would be suicide for any trust whose value is stuck in illiquid and unquoted assets.
That’s not true of Pershing, whose core portfolio of a dozen highly-liquid North American large- and megacap stocks could be liquidated overnight. Open-ending Pershing would remove the discount without causing serious headaches around leverage and board oversight, because there’s very little of either. It’s worth a go, surely?
For its trickier positions, Saba’s obvious alternative course of action is to hang around and keep irritating the board. Short of making requisitions it might keep voting against the annual re-election of directors, at an unknown cost both to itself and its targets, which turns the strategy into a stock market equivalent of Touch The Truck.
Yet Weinstein has shown no interest in using either strategy on Pershing. If any readers can suggest a reason why, our comment box is open.
Further reading:
— Bill Ackman or American Psycho: take the quiz (FTAV)